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back to index backEUROtalk August,  2005

In the Fast Lane

Germany's car makers are at the center of its economy – and they mean to stay there. Chris Cordy reports on the German automotive industry.

Germany's reputation for quality is inextricably bound up with its cars: all around the world, Mercedes-Benz, BMW, Porsche, and Volkswagen are synonymous with first-class workmanship, cutting-edge design and high performance. Responsible for about a quarter of all German tax revenues, the sector is central to the country's economy. The German Association of the Automotive Industry (VDA) says the sector generated sales of more than €200 billion in 2003. Around 20 percent of all capital investment in Germany goes into its car industry. The country is also Europe's largest auto market in its own right, with 3.25 million new car registrations last year – and third worldwide.

30 percent of all vehicles produced in Europe and 16.5 percent of all those produced anywhere in the world in 2003 bore a German trademark. That doesn't even take production by the majority German-owned multinational DaimlerChrysler into account: then the figure jumps to over 21 percent. Even more importantly, Germany is also the world's leading car exporter. More than two thirds of the 5.15 million vehicles it manufactured last year were sold outside the country – a new record. Almost half of all cars sold in Western Europe are German group brands.

The figures for trucks are similarly impressive, with both output and new registrations climbing steadily last year. Full order books at heavy vehicle manufacturers and truck divisions more than suggest this trend will continue in 2005. Of course, many of the factors that have contributed to the success of Germany's automotive industry are ones which have also contributed to the strength of German industry as a whole.

Firstly, its central location gives it easy access to other European markets. In particular, this puts it in an enviable position to cater for the growing demand for newer and better cars in Eastern Europe – especially in Poland and Hungary – and take advantage of the open borders brought by the European Union's recent expansion. Another important factor is the intermodality of infrastructure. It has allowed the country to develop a first-class physical infrastructure and highly efficient communications systems. Extensive road and rail networks and inland waterways carry more goods than any other country in Europe, and Germany is also Europe's airfreight hub, with some 15 major airports, including Frankfurt/ Main, integrated into a sophisticated logistics network. All this allows Germany to make the most of its central location and react quickly to new opportunities.

4,100 new jobs in 2004

Nearly two percent of Germany's workforce is directly employed in the motor industry, and every fifth job is connected to it in some way. Although Germany is still troubled by high unemployment, this hasn't affected the automotive sector: 4,100 new jobs were created in the motor industry in 2004. As far as the workforce itself is concerned, Germany has the most stable labor environment in Europe. Between 1993 and 2002, just five working days per 1,000 inhabitants were lost due to industrial dispute in Germany. This compares very favorably to 252 in Spain, for example, or even 25 in the United Kingdom over the same period. And although German employment conditions are often seen as inflexible and costly, recent developments at several major companies are doing a lot to change that.

An abortive strike by members of Germany's main engineering sector union, IG-Metall, in eastern Germany two years ago, and recent agreements at Siemens, Daimler Chrysler, Delphi, BMW and Opel-GM have altered the face of future German industrial relations. Workers at those companies have accepted longer and more flexible working hours and freezes and de facto cuts to wages and overtime payments in return for management guarantees which would protect them from lay-offs, plant closures and, in some cases, progressive outsourcing.

The combination of political stability, reliability of jurisdiction, and labor flexibility is further enhanced by the strong work ethic for which Germany is traditionally famous. High productivity is a key factor in reducing unit labor costs. In a comparison of unit labor costs of the national economies of Germany, the United Kingdom, the Netherlands, France and Italy between 1995 and 2004, Germany came out best.

Dual educational system

The level of qualification of Germany's workforce is another important factor that gives the country's motor manufacturers a great advantage. The so-called dual education system, which combines on-the-job and academic training, reduces the cost to employers of hiring and training new workers, as well as enabling young people to make a quick entry into the labor force. There are close ties between the extensive network of universities, technical universities and vocationally orientated universities of applied sciences, which work closely with some half a million companies. This means that companies have no problems when it comes to hiring or replacing qualified workers and prestige industries such as motor manufacturing can select the best from a large pool of applicants.

Research and development also benefits from the abundance of highly qualified graduates, and the auto sector makes full use of Germany's traditional engineering strengths to stay at the cutting edge of automotive technology. VDA President Bernd Gottschalk says We are world leaders in automotive technology innovations,” and that's really no surprise: German carmakers spend some €15 billion a year on R&D. That's a third of the country's entire R&D expenditure, more than in any other industry.

Market size and access, high volume of exports, advanced technology and design, high productivity, qualified, motivated and flexible workers, and depth in R&D: each of these adds significantly to the attractiveness of a business location. Hitch them to a product which people all over the world admire and want – namely, a German car – and you can see why it's full speed ahead for Germany's car makers.

Source: Invest in Germany newsletter - GAI

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